Transaction reporting can be a difficult regulatory requirement to get right and compliance can be even more complicated due to multiple overlapping transaction reporting regimes, which all serve slightly different purposes and have varying structures. This article looks at the transaction reporting requirements under four key regulations: MiFID II, EMIR, REMIT and SFTR.

The first regime, MiFID II, which goes into effect in January 2018 introduces a significantly expanded scope of transaction reporting. EMIR, which is a reporting regime for derivative transactions under the EU regulation on OTCderivatives, CCPs, and trade repositories, came into effect on 10 April 2014. REMIT deals with wholesale energy market contracts and came into effect on 7 October 2015. Lastly, the reporting regime for securities financing transactions (SFTs), SFTR, is set to go live in the first quarter of 2018.

Although centred around different marketplaces, the main goal of each regime is to enable markets to be as secure as possible. The MiFID II and REMIT reporting regulations focus on the prevention of market abuse, while EMIR and SFTR focus more on the monitoring of systemic risk in specific markets. Both EMIR and SFTR are tasked with providing authorities with comprehensive reviews of their respective markets.

Scope of application of each reporting regime

MiFID II applies solely to EU regulated investment firms and banks, while EMIR, REMIT and SFTR, with few exceptions, apply to any person who trades the relevant products, regardless of their regulated status.

More specifically, MiFID II’s scope of application entities include investment firms authorised under MiFID II and credit institutions authorised under CRD IV that provide investment services and/or perform investment activities along with EU branches of non-EU firms and trading venues. This means that unregulated end-users are not subject to the reporting requirements.

The scope of EMIR includes financial counterparties and non-financial counterparties, as well as CCPs. Similarly, SFTR’s reporting obligations extend to all the same players as EMIR, in addition to central securities depositories. These obligations cover both participants in the EU and in a third country, if the SFT is concluded with the operations of an EU branch.

Lastly, REMIT affects all market participants, which means any person, including Transmission System Operators (TSOs), which enter into transactions in one or more wholesale energy markets. This includes persons established both inside and outside the EU, both of which must be registered with the relevant competent authority of the Member State in which they are active.

Who does the actual reporting?

For MiFID II, the reporting must be done by either the investment firm, an approved reporting mechanism (ARM) acting on the firm’s behalf, or the trading venue in whose system the transaction was concluded. Under EMIR, either the in-scope entity must report or delegate reporting to its counterparty or third party.

REMIT is slightly different in that market participants must report the transactions executed through either the organised market place used, trade-matching, or trade reporting systems. In regards to TSOs, details of the contract should be reported by the respective TSO or a third party acting on behalf of the TSO only. SFTR, comparable to the other reporting regimes, will make either the in-scope entity or, either a counterparty or third party delegate do the reporting.

Field commonality

To properly report transactions, there are a number of fields that need to be taken into consideration. The graphic below shows the total number of fields necessary for each reporting regime at present.

In 2016, our analysis shows 40 percent (278 of 687) of the total fields are related and talk about the same facts. Of the 40 percent, 58 percent of the formats broadly align with each other. Furthermore, of the 40 percent, 63 percent of those field definition commonalities lie within:

Transaction report background details

Counterparty/market participant details

Financial instrument details

What this tells us is that it is possible to group and map the fields back to common facts, however, a common view of the trade lifecycle is required for context. Below is another graphic that shows the percentages of field commonalities among the four regimes and how these regimes are related to each other.

What does this mean for the future of transaction reporting?

The overall agreement within the industry is that there is a need to harmonise the global requirements of transaction reporting. However, this task proves more difficult than it seems. In order to move towards that final goal, a couple of steps have to take place first. There is a general inclination to reduce ‘code type’ fields such as ‘reporting entity identification code type,’ along with cutting back on some personal details such as buyer and seller postcode details. There could also be reductions in the number of fields through mergers, e.g., removing ‘trading day’ and ‘trading time’ by making one field called ‘trade date time.’ It would also be beneficial to remove some of the more judgement based fields such as ‘put/call’ and ‘result of the exercise.’ By completing these steps and even possibly going further, we would be that much closer to a global process for transaction reporting, though it may be a long time before that is achieved. Until then, firms must comply with these complicated regulations and processes.

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